The Smart car, the industry-defining Mercedes-Benz micro car whose losses over the years have run into the billions, has for the first time in ten years been given an upgrade.

Last night in Berlin, the global capital of the Smart car, Mercedes revealed a new fuel-efficient ForTwo two-seater and a new version of the ForFour four-seater, a car discontinued in the middle of the last decade.

Taking his cue from the recent Berlin Fashion Week, Dieter Zetsche, the famously politically incorrect head of Mercedes, said of the Smart car: “Like the fashion models they have a small appetite and perfect measurements, and like a supermodel they have long, successful careers.”

In reality, despite defining the future for small city cars as long ago as 1998, the development of the Smart car has stalled for lack of investment.

That has changed with the announcement of a cost-sharing development agreement with Renault-Nissan. The new Smart cars will, like their predecessors, be built in Hambach, on the Franco-German border, but also in Slovenia where Renault is building its city car, the Twingo.

“We were afraid that we would lose ground,” said Dr Zetche of the long wait for a new Smart car. “But we have been selling 100,000 a year, which is an accomplishment given the generation of the product.”

The new Smart cars will come on to the market starting at €10,300 (£9,000), similar to current pricing.

Annette Winkler, chief executive of the Smart brand, said that she envisaged Smart’s competition to be its new stablemate, the Renault Twingo, the Fiat 500 and the Volkswagen Up — and to a certain extent the smaller versions of the Mini.

Dr Zetsche declined to comment on the extent of Smart car losses during the 20 years that Mercedes has been involved in its development and production. “We plainly need to generate value and that is why we are in co-operation with Renault-Nissan, sharing the development costs and the components and to get the scale,” he said.

“We definitely expect to be selling more than 100,000 a year in the future and we now have the foundation for a business case going forward.”

Mercedes will continue to make its current generation of electric Smarts until 2016, but Dr Zetsche said that the company, like many other conventional manufacturers, remain wary of a technology that gives vehicles limited range while investment in charging infrastructure remains in its infancy.

The big wins for the Smart car are the trend toward car-sharing schemes and street-side car hiring projects. “It means the Smart is functional but also cool because it is the way a lot of people, especially a lot of young people, want to drive in cities,” Dr Zetsche said.